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Sebi proposes market making mechanism for corporate bonds

Market makers are entities that quote both a buy and a sell price for corporate bonds in order to create liquidity in the secondary market
Representational image.

PTI   |   New Delhi   |   Published 17.11.21, 01:47 AM

Sebi on Tuesday proposed a market making mechanism in the corporate bond market in a bid to enhance liquidity in the secondary market for such bonds. 

Market makers are entities that quote both a buy and a sell price for corporate bonds in order to create liquidity in the secondary market. Generally, stock brokers double up as market makers.

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In a consultation paper, the regulator suggested that registered stock brokers or merchant bankers can act as market makers in the corporate bond market subject to minimum net worth requirements.

To ensure the capital adequacy of a market maker, Sebi proposed that only those stock brokers or merchant bankers that have an additional net worth of Rs 10 crore over-and-above the requirements of their respective rules under Sebi should be permitted to act as market makers.

The proposed framework should be applicable to listed issuers which have listed their non-convertible debt securities and their outstanding value of such debt securities should be at least Rs 500 crore as on the last date of the previous financial year.

It should also be applicable for all prospective issuances, irrespective of the rating assigned thereof, according to Sebi.

The regulator said that responsibilities of issuers and market makers should be on a comply or explain basis for one financial year to start with.

“Market making is a significant cog in the wheel which will not only enhance liquidity but also provide a fillip to facilitate market efficiency and functioning,” Sebi said.



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